Law Firms

Report Predicts More Equity Partners Will Be Axed, Sees More Outsourced Work

Most law firms cut equity partners the first half of 2010, but the bloodletting may not be over.

A new survey of 187 law firms by Citi Private Bank shows flat revenues in the first six months of the year and slightly lower demand, according to a summary in the American Lawyer by Dan DiPietro, chairman of Citi’s Law Firm Group, and senior client adviser Gretta Rusanow. “At best, we may have reached a bottoming out,” they write.

Law firms have cut expenses, largely through cuts in lawyer head counts, leading to increases in both productivity and contribution per lawyer (which is defined as revenue per lawyer minus expenses per lawyer), the article says. With the new incoming class of lawyers, the authors say there may still be excess capacity.

And equity partners may be taking more of the hit. Cutting equity partners has been “a focal point” for firms in 2010, DiPietro and Rusanow write, and they predict it “will continue to be a priority throughout 2010.”

The authors also write of “an unprecedented shift in the market.” Leading law firms report that demand is low and competition is high, leading to pricing pressure from general counsel who are increasingly willing to consider lower-cost alternatives for their legal services.

Not only are general counsel turning to Second Hundred firms, they are also sending work to offshore legal service providers and virtual law firms, the article says. “While some firms call the entry of low-cost service providers a threat to their market share,” the authors say, “we have also heard others describe these lower-cost alternatives as an opportunity to reduce their own cost structure by outsourcing some of their work to these providers.”

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